LeasePlan Corporation N.V.

Transcription

1 October 25, 2011 LeasePlan Corporation N.V. Primary Credit Analyst: Pierre Gautier, Paris (33) ; Secondary Contact: Dhruv Roy, London (44) ; Table Of Contents Major Rating Factors Rationale Outlook Related Criteria And Research 1

2 Major Rating Factors Strengths: Leading worldwide franchise in operational car leasing and fleet management. Strong earnings and capitalization. Regulated status as a bank. Strategically important status to, and expected support in case of need from, Volkswagen Bank. Counterparty Credit Rating BBB+/Stable/A-2 Weaknesses: A predominantly wholesale funding profile and, subsequently, a confidence-sensitive business model. Concentrated business focus. High residual value risks, implying inherent earnings volatility. Rationale The ratings on Dutch bank LeasePlan Corporation N.V. (LeasePlan) primarily reflect Standard & Poor's Ratings Services' opinion of its leading worldwide franchise in operational car leasing and fleet management, its strong earnings and capitalization, and the ongoing benefits derived from being a regulated bank. However, the ratings are constrained by our view of the bank's wholesale funding profile, its narrow business focus, and earnings volatility stemming from structurally high residual value risks. Standard & Poor's considers LeasePlan to be strategically important to Volkswagen Bank GmbH (VW Bank; A-/Stable/A-2), its 50% owner, because LeasePlan adds geographic and business diversity to VW Bank's captive business model and is a recurrent earnings contributor. Therefore, according to our criteria, LeasePlan's ratings benefit from one-notch of uplift for extraordinary parental support. Fleet Investment B.V. (not rated), the investment vehicle of Mr. Friedrich Von Metzler, a prominent German banker, owns the remaining 50%. We believe this participation to be primarily a financial investment, which is why we give more weight in terms of support to VW Bank. In addition, Fleet Investment B.V. has a put option vis-à-vis carmaker Volkswagen AG (VW; A-/Stable/A-2), VW Bank's ultimate parent. LeasePlan leads the fleet leasing market in Europe and is one of the global leaders. We consider that the bank's narrow business focus is a rating constraint but we believe that LeasePlan enjoys a very strong franchise in this segment. Although a relatively small size by international standards (with 18.3 billion in assets as of midyear 2011), the bank operates in almost 30 countries and holds a leading position in many of them. This provides LeasePlan with satisfactory earnings streams and a stable, loyal client base, composed of mainly large blue-chip companies. LeasePlan is a non-captive entity, which in our view increases its business and earnings resilience. The bank's strategy has remained autonomous from that of the whole VW group, notably with respect to fleet composition, and we expect this key defining factor to persist. From a financial profile perspective, we believe that LeasePlan's reliance on wholesale funding is its principal rating Standard & Poors RatingsDirect on the Global Credit Portal October 25,

3 weakness. The bank continues to maintain satisfactory liquidity buffers to redeem the large amount of government debt issued in 2008 and 2009, which is due in first-half 2012 (approximately 3.2 billion). However, any difficulties in accessing unsecured markets could strain LeasePlan's liquidity in the medium term, even if the bank can use private placements and asset-backed securities deals as funding channels. We positively note that the deposit collection initiative launched in early 2010 has been successful so far, with more than 1.8 billion of deposits collected in less than 18 months (equivalent to 15% of the funding base). The stability of these deposits and client loyalty have yet to be demonstrated through the cycle. In our opinion, revenue should rebound in 2011, helped by sustained leases outstanding, improved new business margins, and resilient fees and insurance income. We expect the results from terminated contracts to slightly improve compared with 2010, specifically because of the implementation of measures at the peak of the financial crisis that were introduced to reduce the intrinsic sensitivity of the bank's revenue to residual value swings. However, any renewed recessionary scenario could put pressure on second-hand car prices and therefore increase residual value risk because the bank sells the cars it leases only when their contracts expire. Overall profitability benefits from low credit losses, less than an average of 15 basis points over the past five years, as a result of LeasePlan's high quality customer base. We anticipate the ratio of core earnings to average adjusted assets to rebound to around 1.3% in 2011 from 1.1% in 2010, and net profit to be above 210 million in 2011, compared with 199 million in Interest-rate risks and currency risks are limited overall. Capitalization has improved over recent years because of full retention of earnings and lower asset growth. Our 11.8% risk-adjusted capital (RAC) ratio before adjustments in 2010 and 14.5% Tier 1 ratio at midyear 2011 indicate a strong capital position, in our view. The difference between the two ratios primarily reflects our more stringent risk charges on corporates and small- and medium-size enterprise exposures. Outlook The stable outlook reflects our view that recent improvements in LeasePlan's earnings, capitalization, and funding profile are sustainable. In our view, this puts the bank in an adequate position to face a likely economic slowdown in 2012 in most European countries as well as persisting tensions in funding markets. Additionally, we believe that ownership support could materialize if need be, however, this is currently not what we expect. Nonetheless, the potential ownership support mitigates potential downside to the ratings. If we perceive pressures on liquidity, notably difficulties in rolling over debt that is maturing in first-half 2012, or if the bank is unable to maintain liquidity buffers at current levels (with a financial autonomy above nine months in the case that capital markets remain closed), we could consider a negative rating action. We would view an aggressive management of capital, even though currently unexpected, as a negative rating factor as well. Any signs of declining strategic interest from VW Bank, for example through a reduction in its ownership stake, could lead us to remove the notch of support currently factored into the ratings. Because LeasePlan's stand-alone credit profile is one-notch below the current ratings, we believe upside potential for the ratings is currently limited. In the longer term, we could consider an upgrade if LeasePlan successfully and substantially reduces its reliance on wholesale funding. 3

4 Table 1 LeasePlan Corporation N.V. Risk-Adjusted Capital Framework Data (Mil. ) Exposure* Basel II RWA Average Basel II RW (%) Standard & Poor's RWA Average Standard & Poor's RW (%) Credit risk Government and central banks 1, Institutions 1, Corporate 11,767 6, , Retail 1,579 1, , Of which mortgage Securitization Other assets 1,433 1, , Total credit risk 17,741 10, , Market risk Equity in the banking book ,250 Trading book market risk Total market risk , Insurance risk Total insurance risk , Operational risk Total operational risk -- 1, , (Mil. ) Basel II RWA Standard & Poor's RWA % of Standard & Poor's RWA Diversification adjustments RWA before diversification 12,820 15, Total Diversification/Concentration adjustments RWA after diversification 12,820 15, Tier 1 Total adjusted Standard & Poor's (Mil. ) capital Tier 1 ratio (%) capital RAC ratio (%) Capital ratio before adjustments , Capital ratio after adjustments 1, , *Exposure at default. Securitization exposure includes the securitization tranches deducted from capital in the regulatory framework. Exposure and Standard & Poor's risk-weighted assets for equity in the banking book include minority equity holdings in financial institutions. Adjustments to Tier 1 ratio are additional regulatory requirements (e.g. transitional floor or Pillar 2 add-ons). RWA--Risk-weighted assets. RW--Risk weight. RAC--Risk-adjusted capital. Sources: Company data as of Dec. 31, 2010, Standard & Poor's. Table 2 LeasePlan Corporation N.V. Asset Quality, Funding, And Liquidity Ratios (%) 2011* Gross nonperforming assets/customer loans + other real estate owned (%) Net nonperforming assets/customer loans plus other real estate owned (0.5) (0.5) (0.6) (0.4) (0.4) Loan loss reserves/gross nonperforming assets (%) N.M. N.M. N.M. N.M. N.M. Loan loss reserves/customer loans (%) New loan loss provisions/average customer loans (%) Standard & Poors RatingsDirect on the Global Credit Portal October 25,

5 Table 2 LeasePlan Corporation N.V. Asset Quality, Funding, And Liquidity Ratios (cont.) Customer deposits/funding base Total loans/customer deposits (%) , , ,804.4 Total loans/customer deposits + long-term funds (%) Customer loans (net)/adjusted assets (%) *Data as of June 30, N.M.--Not meaningful. Table 3 LeasePlan Corporation N.V. Profitability Ratios (%) 2011* Net interest income/average earning assets (%) Net interest income/operating revenues (%) Fee income/operating revenues (%) Market-sensitive income/operating revenues (%) 1.7 (0.5) Personnel expenses/operating revenues (%) Noninterest expenses/operating revenues (%) New loan loss provisions/operating revenues (%) Preprovision operating income/loan loss provisions (%) 2, , , ,721.6 Operating income after loss provisions/operating revenues (%) Pretax profit/operating revenues (%) Tax/pretax profit (%) Core earnings/operating revenues (%) Core earnings/average adjusted assets (%) Noninterest expenses/average adjusted assets (%) Core earnings/average adjusted common equity (%) Pretax profit/average common equity (%) *Data as of June 30, Table 4 LeasePlan Corporation N.V. Capital Ratios (%) 2011* Tier 1 capital ratio (%) Adjusted total equity/adjusted assets (%) Adjusted total equity/managed assets (%) Adjusted total equity plus loan loss reserves (specific)/customer loans (gross) (%) *Data as of June 30,

6 Table 5 LeasePlan Corporation N.V. Summary Balance Sheet (Mil. ) 2011* Assets Cash and money market instruments 2, , , Securities Trading securities (marked to market) Nontrading securities Mortgage-backed securities included above Loans to banks (net) Customer loans (gross) 14, , , , ,534.5 Loan loss reserves Customer loans (net) 14, , , , ,471.6 Earning assets 16, , , , ,170.9 Equity interests/participations (nonfinancial) N/A N/A N/A N/A N/A Investments in unconsolidated subsidiaries (financial companies) Intangibles (nonservicing) Interest-only strips N/A N/A N/A N/A N/A Fixed assets Derivatives credit amount Accrued receivables N/A N/A N/A All other assets 1, , Total assets 18, , , , ,345.3 Intangibles (nonservicing) Minus insurance statutory funds N/A N/A N/A N/A N/A Adjusted assets 18, , , , ,257.8 Liabilities Total deposits 3, , , , ,423.7 Noncore deposits 1, , , , ,618.1 Core/customer deposits 2, , Acceptances Repurchase agreements N/A N/A N/A N/A N/A Other borrowings 10, , , , ,358.8 Other other borrowings N/A N/A N/A 1, Other credit reserves N/A N/A N/A Other liabilities 2, , , , ,159.0 Total liabilities 16, , , , ,941.4 Total equity 2, , , , ,403.9 Limited life preferred and quasi equity Preferred stock and other capital Manditorily convertible securities Enhanced trust preferred Government-owned hybrids included in TAC without limit N/A N/A N/A N/A N/A Standard & Poors RatingsDirect on the Global Credit Portal October 25,

7 Table 5 LeasePlan Corporation N.V. Summary Balance Sheet (cont.) Minority interest-equity Common shareholders' equity 2, , , , ,403.9 Share capital and surplus Revaluation reserve 3.1 (24.7) (110.3) (145.0) 30.3 Retained profits Other equity N/A N/A N/A N/A N/A Total liabilities and equity 18, , , , ,345.3 *Data as of June 30, N/A--Not applicable. TAC--Total-adjusted capital. Table 6 LeasePlan Corporation N.V. Equity Reconciliation Table (Mil. ) 2011* Common shareholders' equity 2, , , , ,403.9 Plus minority interest (equity) Minus dividends (not yet distributed) (65.0) Minus revaluation reserves (3.1) (30.3) Minus nonservicing intangibles (92.6) (92.6) (94.0) (95.6) (87.5) Minus tax loss carryforwards Minus postretirement benefit adjustment (5.4) 0.0 Adjusted common equity 1, , , , ,286.1 Plus admissible preferred and hybrids Total adjusted capital 1, , , , ,286.1 Plus general reserves Plus unrealized gains Minus equity in unconsolidated subsidiaries (36.0) (35.8) (22.4) (23.9) (25.9) Minus capital of insurance subsidiaries (117.0) (117.0) (121.7) (97.9) (94.0) Minus adjustment for securitized assets Adjusted total equity 1, , , , ,166.2 *Data as of June 30, Table 7 LeasePlan Corporation N.V. Profit And Loss (Mil. ) 2011* Net interest income Interest income Interest expense Operating noninterest income Fees and commissions Net brokerage commissions Trading gains Other market-sensitive income 8.7 (4.7)

8 Table 7 LeasePlan Corporation N.V. Profit And Loss (cont.) Net insurance income Equity in earnings of unconsolidated subsidiaries (0.1) 0.7 Other noninterest income Operating revenues Noninterest expenses Personnel expenses Other general and administrative expense Preprovision operating income Credit loss provisions (net new) Operating income after loss provisions Nonrecurring/special income Nonrecurring/special expense Amortization of intangibles Impairment of intangibles Pretax profit Tax expense/credit Net income (before minority interest) Minority interest in consolidated subsidiaries Net income before extraordinaries Net income after extraordinaries *Data as of June 30, Table 8 LeasePlan Corporation N.V. Core Earnings Reconciliation Table (Mil. ) 2011* Net income (before minority interest) Minus nonrecurring/special income (30.0) (2.4) (63.4) 0.0 (16.3) Plus nonrecurring/special expense Plus or minus tax impact of adjustments (1.0) 3.6 Plus amortization/impairment of goodwill/intangibles Minus preferred dividends Core earnings *Data as of June Related Criteria And Research Group Methodology, April 22, 2009 Bank Rating Analysis Methodology Profile, March 18, 2004 Ratings Detail (As Of October 25, 2011) LeasePlan Corporation N.V. Counterparty Credit Rating BBB+/Stable/A-2 Standard & Poors RatingsDirect on the Global Credit Portal October 25,

9 Ratings Detail (As Of October 25, 2011) (cont.) Commercial Paper Foreign Currency A-2 Senior Unsecured (9 Issues) Short-Term Debt (2 Issues) A-2 Subordinated (2 Issues) Counterparty Credit Ratings History 27-Oct Sep May Oct-2008 Sovereign Rating Netherlands (The) (State of) (Unsolicited Ratings) Related Entities Volkswagen Bank GmbH Issuer Credit Rating Commercial Paper Local Currency A-2 Senior Unsecured (11 Issues) A- Subordinated (2 Issues) BBB+ BBB BBB+/Stable/A-2 BBB+/Negative/A-2 A-/Watch Neg/A-2 A-/Negative/A-2 AAA/Stable/A-1+ A-/Stable/A-2 *Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable across countries. Standard & Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country. BBB Additional Contact: Industrial Ratings Europe; CorporateFinanceEurope@standardandpoors.com Additional Contact: Industrial Ratings Europe; CorporateFinanceEurope@standardandpoors.com 9

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